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I came up with a plan to grow our economy

  1. Jun 17, 2015 #1
    Hey, guys, I came up with a fool-proof plan to grow the economy. What we will do is inflate asset prices. We'll get real estate agents to appraise houses at artificially high values and we'll also drive people into the stock market through QE/inflation. Then everyone will feel like they have more wealth and will spend more money, which will in turn grow the GDP.
     
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  3. Jun 17, 2015 #2

    SteamKing

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    Yep, that's a great plan. but there's only one flaw.

    If you artificially inflate asset prices, the price of everything else will inflate to keep up. If you don't mind paying $50 for a cheeseburger or $500 for a cup of high-test coffee, you're golden. Everybody will be driving a $200,000 car, even if it is only a 30-year old Yugo with a missing driver's door, and you can live in a million dollar home, even if it is only a couple of packing crates nailed together.

    When you inflate, funny things happen to an economy, not all of them good:

    https://theconversation.com/zimbabwe-ditches-its-dollar-ending-an-economic-era-43263

    In Zimbabwe, they finally are getting rid of the worthless local currency and replacing it with U.S. dollars at the rate of $35 quadrillion to US $1.00.

    Yep, you read that right: $35 quadrillion (= 35 × 1015) Zimbabwean dollars will buy exactly one U.S. dollar.

    The immediate effect of this exchange in currencies will be a drastic reduction in the value of wheelbarrows, since these won't be needed to carry around a day's worth of spending money anymore.

    Although most Zimbabweans could scrape together a billion local dollars on short notice, probably by looking under the couch cushions, the country was in dire straits, financially. Zimbabwe once possessed some of the most productive farmland in Africa, but has been reduced lately to importing a lot of its food.
     
  4. Jun 17, 2015 #3

    russ_watters

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    Also, you have the tail wagging the dog there: appraisers don't control home prices, they only report (evaluate) the market value.
     
  5. Jun 17, 2015 #4

    ZapperZ

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    Besides, haven't we tried that already? That was what was going on before the 2008 stock market crash, which was led by the collapse in the housing market! Look at the appraised values of real estates back then!

    BTW, real estate agents do not normally do appraisals. Banks and lending agencies are the ones who send out licensed appraisers to do that. And right now, these appraisals tend to be on the conservative side and are often challenged as being too low. So I'd like to see how one would artificially inflate such an appraisal without getting in a deep doo-doo for doing that.

    Zz.
     
    Last edited: Jun 17, 2015
  6. Jun 17, 2015 #5
    Arbitrarily declaring your house to be worth $10x what it was yesterday amounts to the same thing as declaring the value of the $ to be 10x less than it was yesterday.
    It could take a while to find a purchaser willing to pay for the house, but meanwhile you'll be facing having to pay $10x more for food and other essentials.
     
  7. Jun 17, 2015 #6

    SteamKing

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    Not to mention that the local government would just love to tax the value of your house at its inflated price. :wideeyed: :eek: o_O :sorry: :H
     
  8. Jun 17, 2015 #7
    With respect, this is a really bad idea. Economics is all about supply and demand. And I would insert the adjective real twice. Economics is all about real supply and real demand. There are no short-cuts to the top. There is no easy way to make everyone rich. Money is worth exactly what people believe it is worth. You can never artificially do anything to provide any substantial help to anyone (assuming that you care about justice - you could rob a bank and then give that money to some charity, but that's not just). Real help - if it is of any use - must have substance. Real growth can never be based on anything artificial. Artificial growth is dangerous. I'm thinking of the stock market crashing in 1929. At some point, we have to deal with reality.

    The way to grow the economy is to work hard and to work smart to provide a quality product or service to people who have needs. It also helps to reward good deeds. Never let a good deed, a good product, or a good service go unappreciated. Electing wise and virtuous folks to political office would help too. Unfortunately, wise and virtuous people generally don't go into politics. And when they do, generally they get destroyed by their opponents and the media. God help us.
     
  9. Jun 17, 2015 #8

    PeroK

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    I think that one's already been tried. It's called "boom and bust"!
     
  10. Jun 17, 2015 #9
    That's more or less the way in which the US was dragged out of the crisis in the last years. Judging from FED minutes, they are going to give up such policy soon.

    The problems:
    -works fine when there is strong deflationary impulse, otherwise can easily cause inflation;
    -such inflating housing prices means that new entrants to market are forced to overpay;
    -bubble if accompanied by leveraged investment can end up... well we've seen that.


    Plenty of weasel words. That what you said would be correct under assumption that there is always full utilization of factors of production. (In other words, under assumption, that there are no depressions).

    Under risky assumption of efficient market hypothesis in the strong version.

    I did not know that in economics anyone defined term "real".
     
  11. Jun 17, 2015 #10

    SteamKing

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    Maybe, maybe not.

    The problem with abandoning the Fed policy of Quantitative Easing (and the associated low interest rates which go along with this policy) is that once you do so, the magic dust which has been keeping the stock market buoyant also disappears, and people and institutions are left to sink or swim on their own. It also makes things awkward financially for the treasuries of many countries (including that of the U.S.), since higher interest rates mean that more of a government's annual budget must be converted from spending on various, exciting programs into boring old debt service.

    Currently, the Greek government is finding out the hard way what happens when you can't convince others to keep paying your bills for you and you then have to start living within your means; if a bunch of other governments have to swallow this same bitter medicine all at once, the effects of such treatment could lead to a bigger financial catastrophe than was experienced in 2008, and there is no guarantee that inflation, which has been kept at bay only because government-collected economic data have been selectively reported to minimize its presence, will not return with a vengeance, much worse than was experienced in the decade roughly between 1975-85.
     
  12. Jun 17, 2015 #11

    Evo

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    And with this, time to close.
     
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